Knowing Which Outsourcing Model to Use Before Leaping Into a Digital Transformation

Leveraging overseas suppliers can be invaluable during a digital transformation. But knowing which outsourcing model to choose requires understanding your company’s motivations and limitations.

Almost every company wants to become more digital. Whether that means automating processes, sunsetting legacy systems, or diving into the worlds of social, mobility, and cloud, the desire to adapt now permeates from the bottom rung on the employment ladder all the way to the boardroom. One key problem companies face, however, is not really understanding what undergoing a “digital transformation” really means.

At TayganPoint Consulting Group, John Collins specializes in helping companies go through digital transformations, and prior to his role there he served as a consultant for the likes of Citi Financial, Merck, and Pfizer. But he has experience, dating back to the 1990s, running an outsourcing group for a large company that had nearshore and Indian locations, and he believes that leveraging the service provider market overseas can be a huge boon to any firm undertaking this major change.

Although its importance still eludes many companies, the most critical aspect of any digital transformation is staggeringly obvious: have a plan. The reason this is often overlooked is that the reason behind the change isn’t clear. Collins says that this is because “digital transformation” has become something of a buzzword.

A lot of companies are doing it less because of a defined need to accomplish real goals and instead because it sounds like something they should be talking about in high-level meetings. “Are they just doing it because people are saying it?” asks Collins. “Or are they doing it because it’s truly necessary to stay competitive? Or because it’s getting harder to maintain some systems they have?”

There are a whole host of reasons to undergo a transformation, but it always must start with a sound business case. “If you can’t specify the dollar and cents of the outcomes — the tangible benefits, new business, better efficiencies — then I have to question why you’re doing it,” said Collins.

After defining the why comes the how, and that is where partnering with nearshore providers can give any company a leg up. “Every company can use extra resources gained from the labor arbitrage savings,” said Collins. “That’s one view. But there are a couple of different ways to look at this.”

This starts by picturing the current IT infrastructure that the company is maintaining today. Then think about what the ideal future infrastructure will look like. The key question then becomes whether the company has the resources to both maintain the current system while building up a new one. Even for large companies, this capacity issue is a difficult proposition, and that’s the best time to leverage outsourcing.

So option one becomes hiring a third party vendor to manage the old system while your internal resources devise and construct the future. “A group I ran specialized in ‘taking over the legacy,’” said Collins, “We did that cost effectively in a way to say, ‘we’ll keep the lights on’ while your resources, who know your business models and where you want to go, can focus on the new.” This has many benefits. First and foremost, it frees up the internal team. Now it can think creativity and fully on the future. This empowers the staff to conceive how objectives can be done best rather than getting them done. Tasked with such a large undertaking, employees generally embrace the responsibility and become renewed with motivation in a way that typical upkeep operations of a legacy system never instill.

Using this strategy also ensures that the institutional knowledge of the new systems stays in house. While it can pay to have an external expert create the future architecture, that route means that the in-house staff that will later run it will require training. Or if the vendor continues to manage the infrastructure after it is built, that means putting a lot of trust and responsibility into the hands of a third party. You don’t want a brain drain that leaves nobody inside the company who understands how the infrastructure works. You don’t want to find yourself in a marriage you can’t get out of.

There can be major benefits to that second model that outweigh the risks, however. “The company might not have all the skills it needs to drive to the new, and not be ready to make the big investments in hiring people,” said Collins. More and more vendors have become experts in this area. They are helping guide many companies — of all sizes and in all industries — through this transformation, so they can offer perspectives and up-to-the-minute technical insight that most companies lack internally.

“They see what’s going on in the market, so they can help drive things in the right direction by bringing some tools and technologies to the table that you might not want to invest in yourself,” said Collins. In this way, the company makes the supplier a true partner as it undertakes its digital transformation.

This is the way all technology outsourcing is going, and at no time is it more important to understand the power of this option than during a major transformation. Both strategies can be equally valid. One embraces the old ideas, getting a service done more cheaply outside of the country, while the second model is less interested in the labor arbitrage savings and instead values the specialized expertise of a third party.

For most companies, deciding which outsourcing model to use comes down to how innovative and ambitious they are. There is a lot of value in building your own digital future. But more vital is understanding limitations — both in capacity and knowledge.

And Collins says it is absolutely imperative that everyone hears this message now and determines which strategy works for the company. Because the era in which “digital transformation” was a buzzword is now behind us. Now, these choices determine not just how the organization will navigate through a one-time change but how it will walk down a never-ending technological path of constant evolution. “When you start talking about digital and mobility, you’re now looking at two- to three-year cycles — or less — and it’s accelerating,” said Collins.